Don't let it get away!

The lawsuit that PAETEC (Nasdaq: PAET) shareholders had brought against PAETEC and Windstream (Nasdaq: WIN) to stop a merging of the two companies was settled last week. This removes the major stumbling block to consummating the deal in a timely fashion. It also decreases the chances of a bidding war starting for PAETEC.

The $2.3 billion stock-swap and debt-assumption deal was proposed in August. But it quickly brought suspicion that the PAETEC board of directors did not do a fair job of maximizing the value of the merger for the shareholders, that the $5.62-a-share price was too low. Some analysts felt that $7 a share was a more appropriate price. That was the impetus of the shareholder lawsuit.

To make things even stickier, earlier this month there was a rumor floating around that Level 3 (Nasdaq: LVLT) was interested in making a bid for PAETEC and willing to pay as much as $7.30 a share. But that didn't seem too realistic, as that company had just completed its acquisition of Global Crossing the week before, and neither of those companies had much cash to spare.

The Memorandum of Understanding that settled the lawsuit called for the complaint to be dismissed without the possibility of refiling. One disclosure of the settlement was that PAETEC has an "exclusivity agreement" with Windstream, which keeps PAETEC from even considering any other bids.

All this is good news for those Windstream investors who have come to rely on the company's steady dividend stream, with a projected yield of 8.9%. Like many small telecoms, such as Frontier Communications (NYSE: FTR) and CenturyLink (NYSE: CTL) , Windstream has had to pursue a strategy of acquisitions in order to shift its revenue stream away from the traditional but shrinking fixed-line phone services to more profitable services such as broadband delivery. The PAETEC merger will give Windstream a national 100,000-mile fiber network.

Twixt cup and lipThere's just one more hurdle for Windstream to jump over for this merger to get settled once and for all: Later this month, the PAETEC shareholders will finally get to vote on it. To follow these companies and keep up with what happens, put Windstream and PAETEC on your watchlist. It's really the best way to make sure you don't lose track of the outcome.

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